How do you define a market? It's a timeworn question, which dates back at least to the trust-busting days of Teddy Roosevelt, but one that's freshly relevant in the digital economy.
Take, for example, the pending sale of Citigroup's OneMain Financial unit to Springleaf Holdings. OneMain and Springleaf are the two largest subprime consumer installment lenders in the country, with a combined 2.5 million customers spread across 43 states.
Officials at the Justice Department and in state Attorney General offices have raised antitrust concerns about the proposed $4.25 billion sale, which was originally supposed to close by Sept. 30, but has been delayed amid the governmental scrutiny.
The Justice Department's primary worry appears to be that the combined company will close branches in towns where the two firms currently compete head-to-head, leaving local consumers with fewer storefront options. But the antitrust review comes at a time when, thanks to the Internet, subprime consumers have arguably never had more options for installment loans. Borrowers who visit Lending Tree, the comparison-shopping site, can choose among more than 20 different personal loan products, many of themtargeted at folks with marred credit.
Even Springleaf, which closes most of its loans in its stores, says that 70% of its new customer applications start on a digital device. The migration online suggests that the Justice Department may be fighting the last war.
"The argument is really whether competition comes in at the local level or at the national level," said Michael Tarkan, an analyst Compass Point Research & Trading. "I think there's an argument to be made on both sides."
The list of places where OneMain operate includes off-the-beaten-path communities like Poplar Bluff, Mo. and Lufkin, Texas. Following the acquisition, Springleaf expects to close about 200 branches.
The two firms' loans are generally more expensive than mainstream credit cards, but cheaper than payday loans. Their customers often have credit scores in the low 600s, which places them in the 20th to 30th percentile of the U.S. population.
That demographic has no shortage of other options these days, however, as venture capitalists, in search of the next big fintech company, have poured money into the consumer-lending sector.
Hedge funds and other institutional investors are also helping to fuel the proliferation of online lenders. Seeking higher returns than they can get from the prime loans offered by the likes of Lending Club and Prosper Marketplace, these investors are eagerly purchasing loans from new competitors that are reaching further down the credit spectrum.
"I see marketplace lenders expanding their target market," said Nick Clements, co-founder of the comparison-shopping site MagnifyMoney.
Most prominent among this new breed of subprime lender is Chicago-based Avant, which has made more than $1.5 billion worth of loans since 2012, and recently announced a $325 million equity financing round. Avant offers two- to five-year personal loans ranging from $1,000 to $35,000, and at annual percentage rates ranging from 9.95% to 36%.
A newer entrant, Applied Data Finance, is offering one- to three-year loans of between $1,000 and $10,000. The loans, sold through the Personify Financial brand, have an average annual percentage rate of around 32% or 33%, according to Chief Executive Krishna Gopinathan. Annual interest rates max out at 100%, the firm's website states.